Just in case you were wondering how bad the Marcellus Shale thing could work out, consider the whole BP/Gulf of Mexico/Oil Spill Armageddon that we are now witnessing.
This oil spill, or at least the risk of its occurrence, was foreseeable. Over enough time, it was not a matter of if. It was a matter of when.
Everyone knew that the costs of an oil spill triggered by an offshore platform would be catastrophic. Yet, we allowed it to happen.
And despite the risks, companies merrily went ahead and built the platforms and drilled fracking holes in the seafloor.
You think if corporations actually had to account for the true cost of this fracking thing that they would inevitably unleash, they'd have any interest in doing it? If not shielded by limited liability, BP would have been forced to set up cash reserves so fracking large, it would cause them to dip into the red for a quarter or two and possibly cause a dent in the annual bonus pool.
You think that if BP's fat cat execs knew they'd be personally liable for the cost of oil spill they'd have any interest drilling deep sea wells?
In other words, the only reason BP ever thought offshore drilling was a good idea was that they knew we the taxpayers were going to end up footing the bill for the environmental clean up. Limited liability is the "but for" cause.
Deep-see drilling definitely qualifies as an ultra-hazardous activity - the kind tort professors like to spend a couple of classes on. I'd argue that selling derivative contracts ought to also qualify as an ultra-hazardous activity. But that's a whole different post.
In any event, the point I'm making is we ought not provide free insurance for those folks who decide to engage in ultra-hazardous activities. As Milton Friedman and even Alan Greenspan were prone so say with regard to anything that may distort their precious, the issuance of free insurance distorts the market. As long as we continue to grant corporations free insurance to conduct ultra-hazardous business enterprises, we're going to end up with more people engaged in a type of activity than is economically optimal.
It's Econ 101.
It's the Limited Liability problem.